Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

Kolluru Srinivas* and Kolluru Krishna**

For any industry, use of Information Technology (IT) and innovation is necessary in order to stay ahead in the competition. The logistics industry is a classic example of the birth and development of a vital new service-based industry. The industry has been transformed from the business concept of transportation to that of serving the entire logistical needs. The challenges of the modern technology-driven competition, globalization of manufacturing, shorter product life cycles, increasingly sophisticated customers needs and greater integration of technologies compelled the logistics industry to develop innovative strategies and processes. The main objective of this paper is to present a brief insight into the various cost saving technologies that were adopted by the Indian logistics industry (road, railways, ports and aviation) for improving the services. The paper gives a brief picture of the logistics industry in India. It also gives a brief literature survey on the topic. The paper also describes the recently used technologies and some of the innovations that have taken place in all the major transportation chains (road, rail, marine and aviation) and their benefits.

Overview of Indian Logistics Industry

A Brief Background
The Indian economy has been growing at an average rate of over 8% over the last few years. The economy has posted a growth rate of 9.0% in 2007-08. Similarly, the manufacturing sector has registered a growth rate of 8.2%, which is acting as a major growth driver for the logistics industry. The major logistics functions of the industry include transportation, warehousing, freight forwarding, etc. Spending on the logistics industry in India is estimated
* Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent, New Delhi, India. E-mail: ksrinivas@imi.edu ** Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent, New Delhi, India. E-mail: kolluru007@gmail.com 114 2009 IUP. All Rights Reserved. The IUP Journal of Infrastructure, Vol. VII, Nos. 3 & 4, 2009

around 13% of Gross Domestic Product (GDP), which is estimated at Rs. 4,068.63 bn in 2007-08.1 However, Indias spending on logistics is much higher than that of the developed economies like the US (9.5%), Japan (10.5%) and Germany (10%). Figure 1 provides a brief picture of Indias spending on logistics over the last few years. Figure 1: Spending on Logistics in India
4,500 4,000 3,500 3,000 Rs. (bn) 2,500 2,000 1,500 1,000 500 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Years
Source: MOSPI, PIB, Government of India

From the cost component point of view, transportation accounts for about 35% of the total logistics costs followed by inventories (25%), losses (14%), packaging (11%), handling and warehousing (9%) and customers and shopping (6%).2

Table 1: Spending on Infrastructure from 2005-06 to 2011-12E

(Rs. bn) Roads Power Railways Telecom Aviation Ports Oil and Gas Urban Infrastructure Total 1,520 4,812 1,100 1,226 370 800 2,210 1,974 13,973
Source: Edelweiss Research

Reasons for High Spending and Government Initiatives

The reasons for this huge spending can be attributed to lack of efficient infrastructure facilities, lack of implementation of Information Technology (IT) in logistics and delay checking points on the highways3 which invariably increases the transportation costs. Another major reason could be the regulatory obstacles, which not only increases the cost of service, but also
1 2 3

Ministry of Statistics and Program Implementation (MOSPI), Government of India. Edelweiss Research. As per the estimate of the Planning Commission, Government of India, the economic cost of such delay is at a minimum of Rs. 3,200 cr and a maximum of Rs. 4,300 cr for the year 2004 which progressively goes up to Rs. 60,168 cr by 2017. 115

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

results in frequent delays and thereby higher logistics costs. To overcome this situation, the Government of India has taken initiatives to improve the infrastructure in the country by spending around Rs. 14 tn across the sectors (Table 1).

Freight Handling Scenario

Cargo traffic handled at major Indian ports has seen double-digit growth over the last few years, i.e., 10.38% in 2005-06 and 11.35% in 2004-05. Similarly, the freight carried by railways also grew by 10.7% in 2005-06 and freight carried by road registered a growth rate of about 10% in 2005-06 over the previous years. It has been observed that since 2001-02, cargo traffic (both domestic and international) at all Indian airports has been growing rapidly. Domestic air cargo traffic has been growing at a Compounded Annual Growth Rate (CAGR) of 12.57% from 2001-02 to 2006-07, whereas international air cargo traffic has also registered a CAGR of 13% during the same period (Table 2). Table 2: Cargo Handling Scenario
Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Cargo Handled at Ports (mn tons) 287.60 313.50 344.50 383.70 423.40 463.80 Rail Freight (bn tons km) 492.50 518.74 557.39 602.10 666.50 726.00 Road Freight (bn tons km) 515 545 595 646 706 763 Air Cargo (mn tons) 854 979 1,068 1,281 1,404 1,553

Source: Indian Ports Association, Ministry of Railways, Planning Commission, Airport Authority of India

Review of Literature
With reduced trade barriers and the advent of advanced information technologies, new opportunities and global markets have become available for service providers in the logistics industry. As organizations globalize to access new markets and achieve higher production and sourcing efficiencies, logistics play an important role in moving materials, products, and services through supply chains. The concept of innovation is regarded in most organizations as an effective tool to create and sustain competitive advantages. The logistics function is an area that is increasingly seeking ways of adding value through innovation (Soosay and Hyland, 2004). It has transformed from the business concept of transportation to that of serving the entire logistical needs of customers. The service component offers a very good change of gaining sustainable competitive advantage in the hypercompetitive global market. Conversely, poor service or a reluctance to innovate offers a fairly good change of losing customers
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(Chapman et al ., 2002; and Esper et al ., 2007). Chapman et al . (2002) also found that the advances in technology and communication have compelled this industry to strive permanently for new products and solutions. Several other studies that explored improving influence of innovation on logistics industry on a widely varied spectrum of improvement areas like, quality of service production and delivery (Parasuraman and Grewal, 2000); research and development cost-efficiency (Rao, 2001); transaction costs (Garicano and Kaplan, 2001); productivity, inventory and demand management (Kaplan and Sawhney, 2000); increased customization capabilities (Yingli and Laiwani, 2007); supply chain and relationships (Hyland et al., 2003; Kaltoft et al. 2007; and Yingli and Laiwani, 2007). Hence, logistics organizations must constantly seek new knowledge, think for the customer, anticipate and innovate services to meet customers evolving needs.

Recently Used Technologies and Innovations

Need of Innovation in Logistics
One of the most challenging aspects of understanding innovation in logistics management lies in the accepted wisdom that every product has its own unique value chain. Thus, innovation is primarily a pull phenomenon for service providers in the logistics industry.4 The competition among industries to manage global supply chains cost effectively, created an opportunity Figure 2: Indian Logistics Industry Structure
Logistics Industry

Key Transportations Service Providers

Infrastructure Providers

Support Services

Airlines

Shippers

Road Carriers

Railways Airports

Ports

Roads

Railways

3PL

4PL

Independent Logistics Service Providers

C&F Agents

Warehousing and Distribution Agents

Multiple Service Providers

Note: 3PL Third Party Logistics; 4PL Fourth Party Logistics; C&F Agents Clearing and Forwarding Agents.
Source: Industry Sources, 2007
4

John Seely Brown and John Hagel III define pull and push systems in the context of innovation as follows: Push systems contrast starkly with pull ones, particularly in their view of demand: the former treat it as foreseeable, the latter as highly uncertain. This difference in a basic premise leads to fundamentally different 117

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

for innovations. Innovation in logistics could improve internal efficiency within a logistics organization or could help serve customers better. The purpose of this paper is to understand the need of innovation in the logistics industry, therefore, we begin with a classification of the industry (Figure 2).

Surface Transportation (Roadways and Railways)

Recently, in India, the major thrust of the surface transport sector (both road transport and rail transport) is on Research and Development (R&D). The major reason is to build a comparable and sustainable road infrastructure in the country. In this context, the sector has been improving designs, using modern construction techniques, introducing improved material, coming up with better and appropriate specifications and using new technologies. An outlay of Rs. 60 mn has been provided for road transport R&D in 2006-07. On the same lines, the railway network continues upgrading its systems to take advantage of the latest features and technological applications. In this context, close attention is paid to maintenance, quality control and cost efficiency as these factors play an important integral role in the efficient operation of the Indian Railways. The allotted total IT budget of Center for Railway Information Systems (CRIS) for the year 2006-07 is Rs. 3,500 mn, where the focus was on upgrading the existing Table 3: Focused Areas by the Railways technology and infrastructure and implementing newer tools and Web-enabled services. techniques for building IT infrastructure in Indian Railways Building an IT application that can reflect the existing business performance. (Table 3). Table 4 describes the recently used technologies in the Shift towards data mining from data warehousing. transport chains. Table 4: Recently Used Technologies in Surface, Marine and Aviation Sectors
Road Transport Sector Use of geo-synthetics in improving the performance of pavement overlays. Introduction of Geographical Information Systems (GIS) based National Highways Information System (NHIS) to overcome the traffic and transportation problems. Road Information System (RIS)5 for Golden Quadrilateral (GQ) project. The RIS comprises of computerized time-series.

design principles. For instance, instead of dealing with uncertainty by tightening controls, as push systems would, pull models address immediate needs by expanding opportunities for local participantsemployees and customers aliketo use their creativity. To exploit the opportunities that uncertainty presents, pull models help people come together and innovate by drawing on a growing array of specialized and distributed resources (www.McKinseyquarterly.com). RIS has several components, which can be categorized into two groups, that is, core system and support modules. The core system comprises of Locational Referencing System, Asset Management System, Pavement Management System, Environmental Management System, Traffic Management System and Performance Monitoring System. On the other hand, Support Modules are Security and Access Control Module and System Information Module (Information available at www.nhai.org). The IUP Journal of Infrastructure, Vol. VII, Nos. 3 & 4, 2009

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Table 4 (Cont.) database on the national highways information like traffic analysis, pavement condition, road inventory and asset condition. Indian Railways Freight Operation Information System (FOIS), for controlling and monitoring the multifarious activities in freight operations. Rake Management System (RMS) for handling commercial transactions. RMS to track and manage freight wagons, freight-class locomotives and other operations of the freight system. Implementation of Terminal Management System (TMS) to provide information on freight at the freight terminals, status of the train and expected time of arrival and cost of the freight to the customers. With an emphasis on cost reduction and to ensure optimum capacity utilization, there has been an increase in horizontal integration among the shipping liners.6 Use of IT like Internet services to improve supply chain process, enhance cooperation between freight carriers and their customers by enabling communication and eliminating the heavy procedures and regulations.7 Vessel Traffic Management System (VTMS) to provide effective guidance on navigation of ships, which is already installed at Mumbai, JNPT, Kolkata, New Mangalore and Mormugao ports. Computerization of container handling operations like managing container traffic, major ports connectivity, etc. Implementation of Radio Frequency Identification system for identifying the movement of ships wirelessly using radio waves. Air Traffic Management (ATM) to modernize air traffic control services. Under the ATM, the following services are to be provided such as, Air Route Surveillance Radars, Monopulse Secondary Surveillance Radars, Airport Surveillance Radars, Airport Surface Detection Equipment, Radar Data Processing Systems, Flight Data Processing Systems, Automatic Message Switching Systems, Automatic Self Briefing Systems, 12 VORs.

Marine Sector

Aviation Sector

Horizontal integration has various forms such as operational arrangements on vessel sharing, slot sharing, consortia and strategic alliances. Consortia are agreements between liner shipping companies to operate jointly in services like technical, operational, or commercial coordination. Strategic alliances are emerged to provide combined services on various routes to shipping lines. In addition, these alliances were formed to increase efficiency and ensure better utilization of vessels through numerous arrangements. In many developed countries, port information systems have been transformed into integrated logistics information systems through interconnected efforts with other logistics-related information systems. Some of the examples are INTIS at the Port of Rotterdam, ADEMAR at the Port of Le Havre, DAKOSY at the Port of Hamburg, SEAGH at the Port of Antwerp, and FCP80 at the Port of Felixstowe. Generally, the IT systems facilitate electronic submissions and clearance of shipping information. 119

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

Table 4 (Cont.) DVORs with Remote Monitoring and Maintenance facility colocated with High Power DMEs for uni-directional airways. Communication, Navigation and Surveillance (CNS) to facilitate and support systems for air navigation. The CNS discharges the services like coordination among all concerned agencies and organizations, preparation of estimates, invitation of tenders, evaluation of technical and commercial bids, placement of orders of equipment and its subsequent installations, etc. Electronic Data Interchange (EDI) to know latest information and status of export/import cargo via Internet. Flight Data Processing System (FDPS) to achieve improved automation of air traffic services. Automatic Dependence System (ADS) for enhancing the surveillance over Indian air space. There are also few other technologies that were proposed to be taken up for the development of the Civil Aviation Sector in the country, such as: IT-based system to assess vehicular traffic volume for airport public access. LED-based airport lighting and display technology. Intelligent digital surveillance. Integration techniques for information. Information dissemination and online payments through Internet. Radio frequency-based identification techniques. Wireless information technologies. Smart card technology. Common use IT systems. Online simulation of terminal congestion. Electronic perimeter prevention. security system and intrusion

Explosive detection technology. Satellite-based CNS/ATM systems.

Marine and Air Transport Sectors

Over the years it has been observed that around 90% of Indias external trade is moving by sea. With the economy growing at a rate of over 8% and positioning itself as manufacturing outsourcing base, new technologies are needed to be developed in the light of the emerging scenario in the Maritime industry. On similar lines, the air transport sector in India is also growing fastly and adopting new technologies for delivering qualitative services.
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Innovations in Road Transport Sector

Over the last few years, India is experiencing the problem of traffic congestion owing to growth in vehicle population, which is growing at a rate of 8-9% per annum. To overcome the problem, the Government of India has come out with an ambitious program, i.e., Jawahar Lal Nehru National Urban Renewal Mission (JNNURM) for improvement of urban transport infrastructure in the country. Generally, investments in the transport infrastructure, particularly in the highways, were being made by the Central or State governments in India.8 But as an innovative tool, now the Central as well as State governments are attracted towards the private sector owing to the managerial efficiency and consumer responsiveness. In this context, the government has laid down certain comprehensive policy guidelines for private sector participation in the road transport sector. On the policy guidelines front, the government has announced several incentives such as tax exemptions, duty free import of road building equipments and machinery, etc. As a result of the governments initiative to involve the private sector in the infrastructure projects, the National Highway Development Program (NHDP) Phase III to Phase VII were taken up on the basis of Public Private Partnership (PPP) on Build, Operate and Transfer (BOT) mode or Annuity mode.

Innovations by Indian Railways

As an experiment, by leasing out catering and parcel services, the Indian Railways (IR) has reduced catering and parcel losses of about Rs. 10 bn in 2005-06. The Railways has also enhanced wagon capacity by attracting private investments in the wagon investment schemes and siding liberalization schemes. While retaining the core activity of train operations, the IR awarded licenses to private parties for running container trains, which is likely to attract investment in wagons and construction of terminals in the coming years. The IR also plans to explore more PPP schemes with an aim to modernizing metro and mini metro stations with world-class passenger amenities, development of agro retail outlets and supply chains, construction of multimodal logistic parks, warehouses and budget hotels, expansion of network and increase in production capacity. The IR also constituted a PPP Cell to develop the policy framework to provide non-discriminatory level playing field to investors, prepare the bankable documents and set up a procedure for awarding partnerships through the open tendering system.

Innovations in the Marine Transport Sector

Radio Frequency Identification (RFID) system is commonly used to describe a system which transmits the identity of an object wirelessly, using radio waves. RFID consists of various components such as tags, tag readers, edge servers, middleware and application software.
8

The main reason is due to the requirement of huge volume of resources, long gestation period, uncertain returns and various externalities associated with the projects. 121

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

RFID is nowadays extensively used in the retail and logistics sectors as a replacement for Universal Product Codes (UPC) or EAN Article Number Code, barcodes, having number of important advantages over the barcode technology. RFID is generally costlier than barcode and may for that reason, not be able to replace the barcode fully, but definitely it is more advantageous than barcode which is having a higher storage capacity. It is expected that almost all of our major ports will sooner or later implement RFID technology in all shipments.

Innovations by Aviation Sector

Electronic Data Interchange (EDI) is a standard format for exchanging business data. It is the inter-organizational exchange of business documentation in structured, machine-processable form over computer communication networks. In India, the EDI implementation agencies are Ministry of Civil Aviation and Airport Authority of India. Automation of cargo processing activities and online data capturing was introduced in 1999 at four metro airports, viz., Delhi, Mumbai, Kolkata and Chennai. The Airport Authority of India (AAI) is assisting automation of cargo processing activities at three non-metro airports such as, Bangalore, Hyderabad and Thiruvananthapuram.

Benefits from EDI

Availability of latest information on status of import/export cargo to the trader via Internet. Drastic reduction in human power deployment by the agencies at the cargo terminal for processing of their consignments, which will ultimately reduce the transaction cost of import as well as exported cargo. Information on the AAI charges that are applicable for a particular consignment at any given time via Internet. Availability of information on the regulatory and the facilitating agencies, cargo handling systems and procedures, facilities available, AAI-prescribed charges/rates, dos and donts, etc.

Conclusion
Logistics, an extension of physical distribution management, usually pertain to the management of the materials and information stream of business, down through a distribution channel, to the end customers. In the Indian context, the scope and role of logistics have changed dramatically over the years. Logistics used to have a supportive role to primary functions such as marketing and manufacturing. But now the industry expanded to cover warehousing and transportation activities, purchasing, distribution, inventory management, packaging, manufacturing, and even customer service. More importantly, logistics management has evolved from passive, cost-absorbing function to that of strategic factor that provides unique competitive advantage. The global marketplace has compelled every industry to
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transform itself into a truly customer-oriented, service-focused enterprise, irrespective of the products and services it sells. To stay ahead in the modern global marketplace, organizations must constantly look for innovative strategies to improve their competitiveness. As organizations globalize to access new markets and achieve higher production and sourcing efficiencies, logistics play an important role in moving materials, products, and services through supply chains. It is evident from the paper that logistics organizations that are willing to sustain their position in the market, will have to conform and adopt innovations of the information era. Especially, logistics service providers have to adopt and creatively deploy up-to-date technology, because logistics industry strongly depends on information for efficient operations. Logistics technologies refer to the hardware, software, and network design required to facilitate processing and exchange. It includes related components in the supply chain, such as satellite transmissions, web-based ordering, EDI, bar coding, systems for order entry, order processing, vehicle routing and scheduling, inventory replenishments, automated storage, and retrieval systems, etc. The correct implementation of technologies can be a significant source of competitive advantage to the service providers.

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9. Rao P M (2001), The ICT Revolution, Internationalization of Technological Activity, and the Emerging, International Business Review, Vol. 10, No. 5, p. 571. 10. Soosay C A and Hyland P W (2004), Driving Innovation in Logistics: Case Studies in Distribution Centres, Creativity & Innovation Management, Vol. 13, No. 1, pp. 41-51. 11. Virginija Kavaliauskiene and Neringa Survilaite-Bagdonaviciute (2004), Trends in Logistics: Innovations in Logistics Industry, available at http://internet.ktu.lt/en/science/ journals/econo/inzek040.html#Virginija_Kavaliauskiene,_Neringa_SurvilaiteBagdonaviciute 12. Yingli W and Laiwani C S (2007), Using E-business to Enable Customized Logistics Sustainability, International Journal of Logistics Management, Vol. 18, No. 3, pp. 402-419.

Websites
1. Airport Authority of India. 2. Center for Monitoring Indian Economy. 3. Centre for Railway Information Systems. 4. Edelweiss Research. 5. Eleventh Five Year Plan (2007-2012). 6. Indian Port Association. 7. Ministry of Civil Aviation. 8. Ministry of Railways, Government of India. 9. Ministry of Road Transport & Highways. 10. Ministry of Shipping, Government of India. 11. Ministry of Statistics and Program Implementation. 12. National Highways Authority of India (NHAI). 13. National Highway Development Project (NHDP). 14. Planning Commission, Government of India. 15. Railway Budget, 2007-08, Ministry of Railways, Government of India. 16. www.Mckinseyquarterly.com
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